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/tCCOL/U'nJ^f 


REPORT TO THE 


4 -APR-8 
I Copy. 1975 


UK*'* 


/ JOINT COMMITTEE ON PRINTING 


Pricing Of Publications 

Sold To The Public B-114829 


Government Printing Office 


BY THE COMPTROLLER GENERAL 
OF THE UNITED STATES 


NOV. 19,1 974 











COMPTROLLER GENERAL OF THE UNITED STATES 


WASHINGTON. D C. 20S48 


B-114829 



y 


The Honorable Wayne L. Hays 
Chairman, Joint Committee on Printing 
Congress of the United States 

Dear Mr. Chairman: 

On February 13, 1974, you asked us to review the 
pricing policy for publications sold to the public by the 
Government Printing Office. 

We discussed the results of our review with your staff 
and with the Public Printer and considered his comments in 
preparing our report. 

Senator Lloyd Bentsen and Representatives Marvin L. 

Esch and Michael J. Harrington also asked us about the price 
increases, and, if you approve, we plan to send each of them 
a copy of this report. 

We believe that this report could also be of interest 
to the Appropriations Committees. However, we do not plan 
to distribute the report further unless you agree or pub¬ 
licly announce its contents. 


Sincerely yours, 



Comptroller General 
of the United States 









Contents 


Page 

DIGEST i 

CHAPTER 


1 INTRODUCTION 1 

2 FINANCIAL PHILOSOPHY FOR SALES PROGRAM 2 

Sales program cost 3 

Need for price increases 4 

Conclusion 5 

Agency comments 5 

Matters for consideration by the 

Committee 5 

3 RELATIONSHIP OF PRICING STRUCTURE AND 

APPROPRIATIONS 7 

Conclusion 8 

Agency comments and our evaluation 8 

Matters for consideration by the 

Committee 9 

4 LEGISLATIVE HISTORY AND PRACTICES IN 

DETERMINING SELLING PRICES 10 

Conclusion 12 

Matters for consideration by the 

Committee 12 

5 OBSERVATIONS ON PRICING FORMULA AND ITS 

APPLICATION 13 

Need for better allocation system 13 

More analysis needed in determining 

price increases 15 

Need for consistent application of 

pricing formula 15 

Conclusion 17 

Agency comments and our evaluation 17 


APPENDIX 

I Letter dated February 13, 197^, from the 

Chairman, Joint Committee on Printing 18 

II Total revenues and costs of the sales 

program, fiscal years 1958 to 1973 19 




APPENDIX 


III Letter dated September 20, 197 2 *, from 

the Public Printer 

ABBREVIATIONS 


GAO General Accounting Office 

GPO Government Printing Office 



COMPTROLLER GENERAL'S 
REPORT TO THE CHAIRMAN 
JOINT COMMITTEE ON PRINTING 


DIGEST 

WHY THE REVIEW WAS MADE 

In August 1973 the Government Print¬ 
ing Office (GPO) increased prices for 
its publications offered to the 
public. On February 13, 1974, the 
Chairman, Joint Committee on 
Printing, asked GAO to review GPO's 
pricing of publications to determine 
two things: 

—Did the increases embrace the same 
financial philosophy which had 
prevailed in the past? 

—Did the increases change the re¬ 
lationship between the pricing 
structure and the annual ap¬ 
propriation by the Congress? 

(See app. I.) 


FINDINGS AND CONCLUSIONS 

The short answer to both questions is 
"Yes." 

The financial philosophy 

Historically, GPO's financial 
philosophy has been that total 
revenues should exceed the total 
sales program costs. Although a 
different pricing formula was used in 
August 1973 to arrive at the revised 
selling prices, the formula was 
designed to recover the total sales 
program costs. Consequently, there 
has not been a major change in the 
financial philosophy of pricing 
publications for the sales program. 
(See p. 4.) 


Tear Sheet . Upon removal, the report 
cover date should be noted hereon. 


PRICING OF PUBLICATIONS 
SOLD TO THE PUBLIC 
Government Printing Office 
B-114829 


The law governing pricing publica¬ 
tions for sale to the public, which 
has remained essentially unchanged 
since 1932, provides that the selling 
prices be based on the "cost as 
determined by the Public Printer plus 
50 percent." (See p. 2.) 

The Public Printers have defined 
"cost" as used in the law differ¬ 
ently. Before the August 1973 
increase in selling prices, "cost" 
was defined as including only certain 
program costs, such as printing and 
binding costs, postage, and GPO's 
administrative expenses allocated to 
the sales program. Other program 
costs, such as salaries, which were 
not specifically identified as costs 
used to determine selling prices, 
were financed by appropriations from 
the Congress. (See pp. 2 and 7.) 

However, except in fiscal years 1972 
and 1973, sales revenues exceeded the 
full program cost through the 
inclusion in the pricing formula of 
the 50-percent addition specified in 
the law. The surplus revenues were 
deposited in the Treasury as 
miscellaneous receipts. (See p. 7.) 

During recent years, the total costs 
of distributing publications have 
increased much more than their 
printing and binding costs. From 
1969 to 1973 total sales program 
distribution costs increased by about 
$24 million while printing and 
binding costs increased by only 
$2.4 million. 







The largest increases in distribution 
costs were for postage and personnel 
compensation. In 1971 postage 
amounted to $2.1 million; in 1972 and 
1973 postage amounted to $15 million 
and $9.6 million, respectively. 

(See p. 3. ) 

In August 1973 the Public Printer 
announced a price increase because of 
the drastic increase in the sales 
program costs. At that time he said 
that the cost used in determining 
selling prices included the full cost 
of obtaining and distributing 
publications. A pricing formula was 
designed and used to recover the full 
cost to operate the sales program. 

The 50-percent factor was not added. 
(See p. 2.) 

According to GPO officials the 
current pricing formula will permit 
the sales program to recover full 
costs in fiscal year 1976. This may 
not occur, however, if there is a 
large increase in costs or a decrease 
in the number of publications sold. 
(See p. 5.) 

The Public Printer's interpretation 
of cost differs from past interpreta¬ 
tions, but the Public Printer is com¬ 
plying with the law which allows him 
to determine cost. Also the Public 
Printer's interpretation of cost has 
received tacit congressional approval 
in that he has made his views known 
to the House and Senate Appropri¬ 
ations Committees through the annual 
hearings and has not met with 
opposition. 

During the April 197 2 * hearings before 
the Legislative Branch Subcommittee 
of the Senate Committee on Appro¬ 
priations, the Chairman instruc¬ 
ted the Public Printer to add 
the 50-percent factor to the cost 


because the law requires it. 

(See p. 12.) 

The pricing structure and 

appropriations 

In the past, sales revenues were used 
to finance costs identified as being 
used to determine selling prices, and 
appropriations were requested to 
finance other costs, such as 
salaries. The current pricing 
formula uses full costs in deter¬ 
mining selling prices. 

If the past relationship were to 
continue, all costs would be financed 
by revenues and appropriations would 
not be needed to finance these 
specific costs, provided an adequate 
working capital could be established. 
Under current procedures GPO requests 
appropriated funds for costs it now 
intends to recover through sales 
revenues. (See p. 8.) 


AGENCY ACTIONS AND UNRESOLVED ISSUES 

In commenting on GAO's report, the 
Public Printer said he agreed that 
GPO had not changed its financial 
philosophy for pricing publications 
for sale. He also said that, 
although the mechanics of the pricing 
formula were changed in August 1973, 
the relationship between the pricing 
structure and the annual appropri¬ 
ation was not changed. (See 
app. III.) 

GAO believes the relationship between 
the pricing structure and the annual 
appropriation has been changed. In 
the past GPO requested appropriations 
for sales program salaries and ex¬ 
penses which were not identified as 
included when determining selling 
prices. GPO did not request 


ii 





appropriations for the identified 
costs but used sales revenues to 
finance such costs. (See pp. 7 and 
8 .) 


MATTERS FOR CONSIDERATION BY THE 

COMMITTEE 

The Committee may wish to consider 
the impact of increased costs of 
publications on the public. The 
major alternatives to the Committee 
are to: 

--Continue with the current pricing 
policy of recovering the total 
sales program costs from revenues. 
This would mean that cost in¬ 
creases would be passed on to the 
public by increased selling prices 
of publications. 

—Subsidize the cost of publications 
through appropriations, which would 
result in lower selling prices. 

This would require specific legis¬ 
lation stating to what extent the 
publications are to be subsidized. 
Also, if the selling prices are to 
be based on "cost as determined by 
the Public Printer," section 1708 
of title 44 of the United States 
Code should be amended to more 
clearly define "cost." Such an 
amendment would insure a more 


consistent application of "cost" 
t}y the Public Printer. (See p. 5.) 

The Committee may also wish to 
consider whether it wants the Public 
Printer to continue using the current 
pricing formula. If so, the 
Committee may wish to consult with 
the Appropriations Committees on 
whether the Public Printer should 
continue to request appropriations 
for specific sales program costs. In 
the past only the costs not 
specifically identified as used to 
determine selling prices were 
financed by appropriations. Using 
the current pricing formula, which 
includes full costs, appropriations 
for the sales program would appear to 
be required only to provide working 
capital and to meet any costs which 
may not be fully recovered from sales 
revenues. (See p. 9.) 

Further, the Committee may wish to 
consider whether the 50-percent 
factor should be added to the cur¬ 
rent definition of costs. If the 
Committee believes that the 
50-percent factor no longer serves 
its intended purpose, clarifying 
legislation would be desirable; 
otherwise, under the current pricing 
formula, the Public Printer must 
greatly increase selling prices, if 
he is to recover total costs plus the 
50-percent factor. (See p. 12.) 


Tear Sheet 


iii 












































































CHAPTER 1 


INTRODUCTION 


On February 13, 1974, the Chairman, Joint Committee on 
Printing, asked us to review the Government Printing Of¬ 
fice's (GPO's) pricing of publications sold to the public. 
(See app. I.) We directed our review toward determining 
whether (1) the August 1973 price increases embraced the 
same financial philosophy which had prevailed in the past 
and (2) the relationship between the pricing structure and 
the annual appropriation by the Congress had changed. 

SALES PROGRAM 


The Superintendent of Documents, appointed by the 
Public Printer, directs GPO's Public Documents Department 
which sells Government publications to the general public. 
The publication sales program is carried out through mail 
orders and over-the-counter sales at GPO's distribution 
centers in Philadelphia, Pennsylvania, and Pueblo, Colorado, 
and at 26 bookstores throughout the United States. 

About 25,000 publications are available from the 
Superintendent of Documents. In fiscal year 1973 GPO re¬ 
ceived about 4.8 million sales orders for about 78 million 
copies of publications. The sales program is financed by 
appropriated funds and by sales revenues. 

SCOPE OF REVIEW 


We made our review at GPO headquarters. We reviewed 
documents applicable to pricing publications and interviewed 
GPO officials. For data on operating costs and sales 
revenues we relied upon GPO's annual financial statements 
which GAO had audited. 


1 






CHAPTER 2 


FINANCIAL PHILOSOPHY FOR SALES PROGRAM 

The law governing pricing publications--section 1708, 
title 44, United States Code--provides that: 

"The price at which additional copies of Government 
publications are offered for sale to the public by 
the Superintendent of Documents shall be based on 
the cost as determined by the Public Printer plus 
50 percent." 

Over the years, the Public Printers have defined "cost," as 
used in section 1708, differently, as shown below. 

--Between 1932 and 1936 "cost" appears to have been 
the printing and binding cost. The 50-percent sur¬ 
charge specified in the law was added to this cost 
to determine the selling price. 

--In 1936 "cost" was the printing and binding cost plus 
25 percent to cover any cost that would be incurred 
in reprinting a publication. The 50-percent markup 
was added to this total cost. 

--In 1953 "cost" was the printing and binding cost plus 
25 percent for postage, 25 percent for administrative 
expenses, and 25 percent for reprinting. The 
50-percent surcharge required by law was added to this 
cost. 1 

--In August 1973 "cost" was the full printing, binding, 
and distributing cost. The selling price is deter¬ 
mined by multiplying the printing and binding cost by 
a sliding factor from 3 to 2.25.^ Postage is added 
to this amount. The 50-percent surcharge specified 
in the law is not included in the selling price. 


1 Accordingly, selling prices were the cost of printing and 
binding (P&B), multiplied by 2.625. 

^The factor decreases as the printing and binding cost in¬ 
creases to lessen the relative amount of distribution cost 
borne by publications with high printing and binding costs. 
(See table on p. 13*) 


2 





Each of these interpretations resulted in price 
increases. Between 1953 and 1973 prices were increased 
twice, but the definition of "cost" did not change. In 1968 
prices were increased when the 1953 standard printing and 
binding costs used in calculating the selling prices were 
updated. In November 1972 GPO made interim price increases 
while it made a pricing study which led to the August 1973 
price increases. 

The underlying reason for the price changes was GPO's 
desire that total revenues should exceed total sales program 
costs. In various congressional hearings for many years, 

GPO officials have said that this was the philosophy under 
which the sales program was operated. This philosophy, 
coupled with the drastic increases in the sales program cost 
without a large increase in sales volume, brought about the 
need to increase prices in 1968, 1972, and 1973- According 
to GPO records, sales volume increased by about 9 percent 
between 1969 and 1971 and has remained constant since 1971. 

SALES PROGRAM COST 


The total sales program cost in 1958 was about $5 mil¬ 
lion. By 1969 the cost had increased to about $14 million. 
Since that time, however, the cost has risen to over 
$51 million. A comparison of costs of the sales program 
since fiscal year 1969 follows. 


Fiscal year _ 

1974 


Costs 

1969 

1970 

1971 

1972 

1973 

(note a) 







Printing and binding 
Distribution: 

$ 6 , 1.79 

$ 7,912 

$ 6.194 

$ 9.324 

$ 8.634 

$ 10,256 

Postage 

1,348 

1,403 

2,065 

15,057 

9,600 

10,560 

Personnel compensation 

3,536 

4,544 

5,943 

6,479 

8,949 

13,007 

Administrative expenses 

1 ,374 

1 ,705 

1 ,841 
2,282 

2,960 

4,631 

4,978 

Unsalable publications 

458 

1,222 

1.437 

524 

2,077 

6.744 

2,051 

Others (note b) 

1,286 

- j -,849 

2.600 

10,376 

Total distribution 







costs 

8,002 

10,311 

14,980 

27,620 

32,001 

40.972 

Total costs 

$ 14,181 

$ 18,223 

$ 21,174 

$ 36,944 

$ 40.635 

$ 51,228 


^Estimated. 


b Includes all other sales program costs, such as personnel benefits, travel, rent, 
communications, and utilities. 


3 






































As shown in the above table, the largest increases in 
distribution costs were for postage, personnel compensation, 
and "others." 

The major increase in postage during fiscal year 1972 
was the result of the Postal Reorganization Act of August 
1970 (39 U.S.C. 101 et seq .). The act required GPO, along 
with other Government agencies, to pay the same postage 
charges as private, unsubsidized users. GPO had not been 
paying its full share of postage under the old system. 

The growth in personnel compensation resulted primarily 
from general salary increases and additional employees. 

The increase in "others" resulted from increases in 
retirement, life, and health insurance contributions; the 
opening of a distribution center and additional bookstores; 
the conversion of subscription lists to magnetic tape; and 
the implementing of system design and programing studies for 
inventory, order processing, and stock control. 

NEED FOR PRICE INCREASES 

Historically, GPO's financial philosophy has been that 
total sales revenues should exceed the total sales program 
operating costs. Sales revenues from 1958 to 1968 exceeded 
the operating costs. (See app. II.) In 1968, however, 
revenues and costs approached the break-even point. At that 
time the Public Printer recognized that the increased 
operating costs made price increases necessary if sales 
revenues were to continue to exceed the sales program 
operating costs. Price increases became effective on 
September 3, 1968. 

In November 1972 the Public Printer again increased 
prices because the total sales program costs exceeded the 
sales revenues by about 65 percent in fiscal year 1972. 

These were interim prices. Since 1968 printing and binding 
costs had increased about 45 percent and postage had 
increased from about $1 million to about $15 million. 

The interim prices provided additional sales revenues 
while GPO studied its pricing policy. GPO completed its 
study in June 1973 and in August 1973 increased prices on 
the basis of a pricing formula which identified cost 
elements different from the formula used since 1953. Under 
the 1953 pricing formula, printing and binding costs, other 
selected costs, and the 50-percent addition specified by law 
were specifically identified as used to determine selling 
prices. The formula did not specifically identified the" 


4 



salaries and related costs of employees in the sales 
program. Although some costs were not identified as costs 
used to determine selling prices, sales revenues, except in 
fiscal years 1972 and 1973, exceeded the full program costs 
through the inclusion of the 50-percent factor in the 
pricing formula. 

The current pricing formula is predicated on the 
philosophy of recovering the full costs to operate the sales 
program by basing selling prices on total costs rather than 
on certain costs plus the 50-percent factor specified by the 
law. According to GPO officials, this formula was designed 
to increase selling prices which were based on certain costs 
plus the 50-percent factor by an average 73 percent, thus 
allowing the sales program to reach a break-even point in 
fiscal year 1976. 

During April 1974 hearings on the 1975 appropriations 
before the Legislative Branch Subcommittee of the Senate 
Committee on Appropriations, the Chairman instructed the 
Public Printer to add the 50-percent factor to costs so that 
the selling prices would include the 50-percent factor in 
the total amount recovered through the sale of documents. 

The Public Printer deferred making a decision to further 
increase selling prices to account for the 50-percent 
factor. 

CONCLUSION 


Over the years, the Public Printers have operated on 
the philosophy that sales revenues should exceed full costs. 
Although a different pricing formula was used in 1973 to 
arrive at the revised selling prices, the formula was 
designed to recover the full sales program costs. Con¬ 
sequently, there has not been a major change in the finan¬ 
cial philosophy of pricing publications for the sales 
program. 

AGENCY COMMENTS 


The Public Printer agreed that, although the mechanics 
of the pricing formula were changed in August 1973, the 
financial philosophy for pricing publications for sale had 
not changed. 

MATTERS FOR CONSIDERATION BY THE COMMITTEE 


The Joint Committee on Printing may wish to 
the impact of increased costs of publications on 
The major alternatives to the Committee are to: 


consider 
the public. 


5 





-Continue with the current pricing policy of recover¬ 
ing the total sales program costs from revenues. 

This would mean that cost increases would be passed 
on to the public by increased selling prices of 
publications. 

-Subsidize the cost of publications through appropria¬ 
tions, which would result in lower selling prices. 
This would require specific legislation stating to 
what extent the publications are to be subsidized. 
Also, if the selling prices are to be based on 
’’cost as determined by the Public Printer,” section 
1708 of title 44 of the United States Code should 
be amended to more clearly define ”cost.” Such an 
amendment would insure a more consistent applica¬ 
tion of ”cost” by the Public Printer. 


6 


CHAPTER 3 

RELATIONSHIP OF PRICIN G 
STRUCTURE AMD APPROPRIATIONS 


The current pricing of documents is designed to recover 
the full sales program costs. Although GPO's pricing 
philosophy is that sales revenue should exceed full costs, 
the Public Documents Department each year requests 
appropriated funds from the Congress to finance some of the 
sales program expenses. Consequently, sales program costs 
have been financed from both sales revenues and appropriated 
funds. 

GPO has, in the past, used sales revenues to finance 
those costs specifically identified as used in determining 
selling prices. The identified costs included printing and 
binding, postage, and GPO's administrative expenses 
allocable to the sales program. Other sales program costs 
which were not specifically identified in the pricing 
formula were financed by appropriated funds. However, 
except in fiscal years 1972 and 1973, sales revenues 
exceeded total costs because of the 50-percent factor. The 
sales revenues remaining after paying the costs specifically 
identified as used in determining selling prices were 
deposited in the Treasury as miscellaneous receipts. 

Title 44, section 1708 of the United States Code 
provides that: 

"Surplus receipts from sales shall be deposited in 
the Treasury of the United States to the credit of mis¬ 
cellaneous receipts." 

Even though sales revenues exceeded the total program costs 
from 1958 through 1971 (see app. II), appropriated funds 
were used to finance those program costs not identified when 
determining selling prices. During that period, surplus 
receipts available for deposit in the Treasury for each 
fiscal year exeeded the amount of appropriated funds for the 
year. 


The pricing formula the Public Printer adopted in 
August 1973 differed from the previous formula in that the 
costs specifically identified as used in determining selling 
prices became the full cost, not just certain selected 
costs, of obtaining and distributing the publications. If, 
as in the past, sales revenues are used to finance the costs 
specifically identified in the pricing formula, then all 


7 





sales program costs would be financed by sales revenues. 
Appropriated funds would appear to be no longer required for 
specific costs, provided an adequate working capital could 
be established. 

The appropriation request the Public Printer submitted 
to the Congress for fiscal year 1975 will, in essence, 
permit GPO to continue the practice of using sales revenue 
and appropriated funds to finance sales program costs. 
Accordingly, the request does not appear to be based on the 
change in relationship which took place with the adoption of 
the revised pricing formula in August 1973. The Public 
Printer has requested funds to finance costs which are to be 
recovered from sales revenues. 

CONCLUSION 


If the past relationship were to continue, all costs 
would be financed by revenues and appropriations would not 
be needed to finance specific costs, provided an adequate 
working capital could be established. Under current pro¬ 
cedures, GPO requests appropriated funds for costs it now 
intends to recover through sales revenues. Therefore GPO is 
receving both revenues and appropriations for the same 
costs. 

AGENCY COMMENTS AND OUR EVALUATION 

The Public Printer did not agree that the relationship 
between the pricing structure and the annual appropriation 
had changed. In commenting on our report (see app. Ill), he 
said that, although the mechanics of the pricing formula 
were changed in August 1973> the relationship between the 
pricing structure and the annual appropriation was not 
changed. 

The relationship between the pricing structure and the 
annual appropriation has changed. In the past GPO did not 
request appropriations to finance the costs identified in 
the pricing formula but financed such costs from sales 
revenues. Appropriations were requested for the costs not 
identified and used in determining selling prices. 

Under the current pricing formula, all costs, not just 
certain costs, are considered when pricing publications for 
sale. However, GPO is continuing to use appropriations to 
finance sales programs salaries and expenses which were not 
included in the old formula but which are included in the 
current formula. The practice of using appropriations to 





finance costs identified in the pricing formula differs from 
past practices. 

MATTERS FOR CONSIDERATION BY THE COMMITTEE 


The Committee may wish to consider whether it wants the 
Public Printer to continue using the current pricing 
formula. If so, the Committee may wish to consult with the 
Appropriations Committees on whether the Public Printer 
should continue to request appropriations for specific sales 
program costs. In the past only the costs not specifically 
identified as used to determine selling prices were financed 
by appropriations. Using the current pricing formula, which 
includes full costs, appropriations for the sales program 
would appear to be required only to provide working capital 
and to meet any costs which may not be fully recovered from 
sales revenues. 


9 



CHAPTER 4 


LEGISLATIVE HISTORY AND PRACTICES 

IN DETERMINING SELLING PRICES 


Before 1932 the law required that the selling price of 
Government publications be the printing and binding cost 
plus 10 percent. In 1932 the Superintendent of Documents 
testified that publications were so priced to insure that 
the purchasers valued the publications. He further said 
that the prices were not intended to recover the full costs 
of the publications. 

On June 30, 1932, the law was changed to provide that 
the selling prices of publications be based on the "cost 
thereof as determined by the Public Printer plus 50 per¬ 
cent." This provision still governs the selling prices. 

The 1932 provision evolved from a proposal the Public 
Printer originated. The Public Printer had proposed an 
amendment to base the selling prices of Government publica¬ 
tions on the "cost thereof as determined by the Public 
Printer plus 50 per centum" to increase the amount of 
miscellaneous receipts deposited in the Treasury. In sup¬ 
port of his proposal, he said that: 

"Under the existing law, which requires that only 
10 percent be added to the cost of printing and 
binding, the Superintendent of Documents has been 
able to turn into the Treasury for miscellaneous 
receipts an average of $200,000 per year, and I 
feel certain that by the increase of this per¬ 
centage over cost the amount returned to the 
Treasury could be more than doubled." 

It seems clear from the above excerpts that "cost," as used 
by the Public Printer, was intended to mean the printing and 
binding cost. 

When the amendment was introduced in the Senate, the 
Senate was told that the amendment provided merely that the 
percent added to the printing and binding cost would be 
increased from 10 to 50 percent. 

The legislative history cited above, although ad¬ 
mittedly sparse, appears to indicate that the 1932 amendment 
was intended to increase revenue by raising the percentage 
markup to 50 percent and that the "cost thereof" meant the 
printing and binding cost, or at most, the cost to the 
Superintendent of Documents of acquiring publications from 
the Public Printer for sale to the public. 


10 





Over the years, however, GPO has defined "cost," 
identified in the pricing formulas, to include more than 
printing and binding costs. Although the definition has 
been somewhat inconsistent, as is evidenced by the various 
interpretations of "cost," GPO has consistently held that 
the Public Printer is authorized to determine the elements 
of costs to be included in determining selling prices. 

These elements include, to a greater or lesser extent, 
handling and distribution costs and other administrative 
costs. 

We calculated the selling prices for three publica¬ 
tions to show the effect these different interpretations 
could have on selling prices. These computations are for 
illustration only and, except for 1973> do not represent 
actual selling prices. Our calculations depict three 
periods in which different interpretations of "cost” were 
used. We also included the current formula but added the 
50-percent factor. We used the pricing formula in effect at 
the various times; however, to make our examples comparable, 
we used the January 1974 printing and binding costs. 


Publication prices 


Period 

Pricing formula 

Presi¬ 

dential 

Tran¬ 

scripts 

Water, 
Man and 
Nature 
(booklet) 

Commerce 
Today 
(annual 
subscrip¬ 
tion ) 

1932 

Printing and binding 
plus 50 percent 

$6.15 

$0.30 

$12.10 

1953 

2.625 times printing 
and binding 

10.75 

.55 

21.15 

1973 

3 to 2.25 times 
printing and 
binding plus 
postage (note a) 

12.25 

.85 

42.40 


(Note b) 

18.40 

1 .30 

63-60 


(Note c) 

17.75 

.85 

34.95 

a The factor decreases from 3 

to 2.25 

as printing 

and bind 


ing costs increase. (See p. 13*) 

^Impact on prices if the Public Printer were to add 50 per¬ 
cent to the current formula. 

c Impact on prices if the Public Printer had increased the 
factor in the 1953 formula to recover only the costs iden¬ 
tified in the past as being recovered from revenues plus 
50 percent. Under this method, full sales program costs 
would not be recovered from sales revenues. 


11 








CONCLUSION 


The Public Printer's interpretation of "cost" differs 
from past interpretations, but the Public Printer is comply¬ 
ing with the law which allows him to determine cost. Also 
the Public Printer's interpretation of ’’cost" has received 
tacit congressional approval in that he has made his views 
known to the House and Senate Appropriations Committees 
through the annual hearings and has not met with opposition. 
During the April 1974 hearings before the Legislative Branch 
Subcommittee of the Senate Committee on Appropriations, the 
Chairman instructed the Public Printer to add the 50-percent 
factor to the cost because the law requires it. 

MATTERS FOR CONSIDERATION BY THE COMMITTEE 


The Committee may wish to consider whether the 
50-percent factor should be aded to the current definition 
of costs. 

If the Committee believes that the 50-percent factor no 
longer serves its intended purpose, clarifying legislation 
would be desirable; otherwise, under the current pricing 
formula, the Public Printer must greatly increase selling 
prices, if he is to recover total costs plus the 50-percent 
factor. 


12 




CHAPTER 5 

OBSERVATIONS ON PRICING FORMULA 


AND ITS APPLICATION 

During the fiscal year 1975 hearings before the Legis¬ 
lative Branch Subcommittee, Senate Appropriations Committee, 
the Public Printer said that he expected to increase prices 
effective January 1, 1975. 

we made several observations during our review 
concerning the current method of allocating distribution 
costs, other than postage, to specific publications. The 
observations in this chapter should be considered by the 
Public Printer when making any future changes in pricing 
policies. 

NEED FOR BETTER ALLOCATION SYSTEM 

The pricing formula allocates all costs, other than 
printing and binding costs and postage, to each individual 
publication on the basis of the estimated printing and 
binding cost. Although such a method is easily applied, 
this method may not produce equitable pricing of individual 
publications. The following table shows the distribution 
expenses allocated to various publications by applying the 
sliding factor GPO uses. 


Printing 
and 

binding 

cost Factor 

$ 1.00 2.95 

7.50 2.625 

10.00 2.5 

a Does not include postage. 

The selling prices are derived by multiplying the 
printing and binding costs by a sliding factor which 
decreases from 3 to 2.25 as printing and binding costs 
increase. Estimated postage is added to these amounts. 


Selling 
price 
( note a ) 

$ 2.95 
19.70 
25.00 


Revenue 
available 
to meet 
distribution 
costs 
( note a ) 

$ 1.95 
12.20 
15.00 


1 Estimated postage is added to all documents even though 
some are sold over the counter. 


13 










The sliding factor is designed to lessen the distribution 
costs borne by documents having high printing and binding 
costs. 


We believe that using printing and binding costs as a 
basis for allocating distribution costs may not be the most 
appropriate method. Our opinion is based on the fact that, 
in many of the distribution functions, printing and binding 
costs have little impact on the distribution costs. For 
example, using multiple colors in a publication would 
increase printing and binding costs and, under the pricing 
formula, would increase the distribution costs allocated to 
the publications. The cost of distributing a multiple- or 
single-color publication, however, would be about the same. 

Also, although the method of distribution obviously 
affects the distribution costs, the current pricing formula 
makes no distinction between the selling price of a 
publication sold to the public by mail and one sold over the 
counter at a GPO bookstore. In both cases, the distribution 
costs allocated to the publications are the same. 

We believe that distribution costs should be so 
allocated that they approximate the actual distribution 
costs. Such a method could involve using different rates 
for different customers, products, or sales methods and 
could involve (1) establishing functional cost centers, such 
as warehousing, order processing, and advertising, (2) 
identifying fixed and variable costs, and (3) establishing 
bases to allocate expenses of the functional cost centers to 
specific publications. 

Such a system not only would assist GPO in allocating 
costs to arrive at selling prices but also would give GPO 
management a valuable tool in analyzing and controlling 
distribution costs. The need for such a tool has become 
more apparent in recent years because of the large increase 
in distribution costs. Distribution costs, including 
postage, have increased from about $8 million in 1969 to 
about $32 million, or 79 percent of the total cost, in 1973. 

We recognize that it may be too expensive to design, 
install, and maintain an optimum cost system. The Public 
Printer, in designing such a system, should carefully weigh 
the costs and benefits that could accrue so that the 
increase in costs justifies the benefits to be derived from 
the system. 


14 


MORE ANALYSIS NEEDED IN 
DETERMINING PRICE INCREASES 


The price increase in August 1973 was based primarily 
on the relationship between total revenues and costs during 
fiscal year 1973* GPO calculated that an increase of about 
73 percent in revenues would have been needed if revenues 
were to have equaled costs for fiscal year 1973. Using this 
percentage, GPO developed a pricing formula to increase 
selling prices, on the average, 73 percent. 

In using this approach, GPO made assumptions which may 
not have been valid and did not consider other pertinent 
factors, such as inflation. For example, GPO assumed that 
(1) the price increases would have no major impact on the 
volume of sales and (2) an average price increase of 
73 percent would increase revenues 73 percent. This latter 
assumption may not have been valid because it was dependent 
on the sales volumes of the various-priced publications 
remaining constant. 

Another example which illustrates the need for better 
analysis before increasing prices is the basis for estab¬ 
lishing a minimum selling price of 25 cents in July 1973. 
Before that time many pamphlets and other publications sold 
for less than 25 cents. According to GPO officials, they 
made no analysis to determine what the minimum price should 
be, because they believed that 25 cents was about the 
minimum cost of printing and distributing a document. 

NEED FOR CONSISTENT APPLICATION 

OF PRICING FORMULA 


In reviewing the application of the August 1973 pricing 
formula, we noted that GPO was not applying it consistently 
to all publications. For example, GPO determined the 
selling prices for dated periodicals by multiplying the 
printing and binding costs by 3 rather than by the sliding 
factor in the formula. Also, when the interim prices for 
periodicals were higher than the calculated formula prices, 
GPO retained the interim prices. 1 

When multiplying the printing and binding costs by 
3 instead of the sliding factor, the difference, in most 


iThe interim prices were established in November 1972 to 
produce additional revenues while GPO studied its pricing 
policy. 


15 







cases, is not large. However, there is a big difference for 
the higher priced publications. For example, GPO used a 
factor of 3 instead of the sliding factor to determine the 
subscription price of $155 a year for Index Medicus. 

Applying the sliding factor would’ have resulted in a selling 
price of $135 a year. 

We identified a number of publications with prices 
above the formula-calculated prices because GPO kept the 
interim prices. Although cost increases may resolve many of 
these differences, some, as shown by the following examples, 
may not be resolved in the immediate future by cost 
increases. 


Periodicals: 

Average Monthly Weather 

Interim 

price 

Price 

formula 

Perce 

over 

Outlook 

Department of Transporta¬ 

$ 7.50 

$4.10 

83 

tion Telephone Directory 

12.50 

6.80 

83 

Foreign Service List 

6.50 

2.95 

120 

Outdoor Recreation Action 

Books and pamphlets: 

3.50 

1 .90 

84 

Alfred H. Maurer 1868-1932 
Structural Stratigraphic 

4.75 

3.60 

32 

Framework 

Severe Local Storm Warning 

50.00 

37.60 

32 

Service 

.50 

.25 

100 


Although these publications are currently overpriced, 
many others, on the basis of GPO's pricing formula, are 
underpriced. For example, GPO is incurring large losses on 
the Congressional Record. GPO does not use the pricing 
formula to determine the Record's selling price. 

According to 44 U.S.C. 906, the Public Printer may 
furnish the Record to subscribers at a price determined by 
the Public Printer on the basis of its printing and 
distribution cost. The current annual subscription price 
for the Congressional Record is $45. The selling price, if 
the current formula were used, would be $331, including 


16 





$36 for estimated postage.^ Considering that there were 
over 4,000 subscriptions for the Congressional Record as of 
April 1974, the loss the sales program bears for this 
document is significant. 

CONCLUSION 


Historically, the sales program distribution costs have 
been allocated to specific publications on the basis of 
printing and binding costs. Since printing and binding 
costs have little impact on distribution costs, this method 
of allocating distribution costs may not be the most 
appropriate method. However, whatever method is used should 
be consistently applied. 

AGENCY COMMENTS AND OUR EVALUATION 


The Public Printer said that GPO was reviewing the 
pricing formula and that GPO would consider our comments and 
observations in making any future refinements to the pricing 
formula. 

We plan to evaluate any further changes to the pricing 
formula during our future reviews at GPO. 


1 The postage cost was about $265 a year until June 8, 1974, 
when Public Law 93-314 (88 Stat. 239) was enacted to permit 
mailing the Record at the second-class rate rather than at 
the first-class rate. 


17 


























































APPENDIX I 


WAYNE L- HAYS. REFRUEXTATIVE from Oho. CHAIRMAN 
HOWARD W. CANNON, SENATOR FROM Knuu, VICE CMAIIMAN 
JOHN BRADCMAS. tEWEJtXTATWt FROM IKZAANA 
“"‘"*1111 ' tl KEFRCSEMTATWE FROM ALABAMA 

niijRrt. Allen, senator from Alabama 
MUCH SCOTT, Senator from Pennstlvajha 

ROSEMARY S. CRIMEN. STAFF DIRECTOR 
DENVER DICKERSON. ASSISTANT STAFF DIRECTOR 


Congress of tfje ®mteb States 

Joint Committee on printing 


Committee room 
S-IS1. US. CAmot 
fMO Ml: 225-5241 


AOOftUS Ma*. TO— 
CMAIIMAN 

JomT Committee on mutt me 
% U S. SttATt P.O. 
Wash MOTon. DC. 29510 


B-114829 


February 13, 1974 


Honorable Elmer B. Staats 

Comptroller General of the United States 

Washington, D.C. 20548 

Dear Mr. Staats: 


The Joint Committee on Printing currently is in receipt of 
mounting complaints and criticisms from the American Library community, 
including depository libraries, concerning the increased prices being 
charged by the Superintendent of Documents. 

It should be noted that there have been erroneous reports that 
this committee directed the Government Printing Office to establish those 
higher rates. 


The basic advice we have received from the Public Printer and the 
Superintendent of Documents, relative to the subject increases, is that 
they were necessary if the Documents Division is to maintain its traditional 
philosophy of being self-sustaining. 


When measured against the extraordinary percentages which many of 
the new, higher prices reflect, the use of that traditional philosophy yard¬ 
stick gives rise to many questions. 


Consequently, as Chairman of the Joint Committee on Printing, it 
will be appreciated if you will have a comprehensive review made of all GPO 
Documents Division price increases, noting whether or not they involve the 
same fundamental financial philosophy which has prevailed in the past; and 
what relationship the current pricing structure has with the division's 
annual appropriations as contrasted with past relationships in that context. 


Please include in the report of your findings resulting from that 
review whatever comments and recommendations you may wish to make. We will 
be pleased to have your report at your earliest convenience. 

With best personal wishes, I am 


Very sincerely yours. 




19 



APPENDIX II 


TOTAL COSTS AND REVENUES 
FOR THE SALES PROGRAM. 



1958 59 60 61 62 63 64 65 66 67 68 69 70 71 72 


FISCAL YEARS 

MB 5 | 4 


70 



APPENDIX III 



STATES GOVERNMENT PRINTING OFFICE 

WASHINGTON, D.C. 20401 


September 20, 1974 


Mr. Werner Grosshans 
Associate Director for Materials 
Management Group 

Logistics and Communications Division 
U.S. General Accounting Office 
441 G Street, N.W. 

Washington, D.C. 20548 

Dear Mr. Grosshans: 

Thank you for the opportunity to review your draft report on the pricing 
policy for publications sold by the Superintendent of Documents. I felt 
that our discussions were informative and useful. 

As pointed out in the report, we have not changed our financial philosophy 
for pricing publications for sale. However, I believe the question concerning 
the relationship between the current pricing structure and the annual appro¬ 
priations was not completely answered. Therefore, I am providing you with my 
views on this matter. The report deals primarily with the mechanics of our 
pricing formula and our financing of the sales program. In my opinion, the 
presentation leads the reader to the conclusion that the pricing formula and 
the annual appropriation are somehow tied together and that a change to the 
pricing formula affects the appropriation or vice versa. 

While we changed the mechanics of our pricing formula in August 1973, we did 
not change the relationship between the pricing structure and the annual 
appropriation. Your report confirms the fact that historically, GPO has 
established selling prices that recovered the total cost of the sales program 
including appropriated as well as non-appropriated costs notwithstanding the 
fact that the titles given to the various elements in the pricing formula may 
not have spelled this out. 

The increase in the sales prices of public documents is due to increased cost 
and not a change in policy or mechanics of pricing. For example, in 1972, our 
postage bill increased from just slightly over $2 million to about $15 million 
Other examples of increased costs could also be cited. Our current pricing 
structure is designed to recover the costs of the sales program. With neces¬ 
sary adjustments to meet increased costs, the formula will allow us to become 
self-sustaining by the end of calendar year 1975. 


Equal Opportunity Employer • Keep Eteedom in lour Future With I S. Savings Fond: 



21 


APPENDIX III 


We are currently reviewing our pricing formula and the comments and obser¬ 
vations in your report will be considered in any future refinements that 
we may make to our pricing formula. 


Sincerely, 

T. F. McCormick 
Public Printer 


☆ U. S. GOVERNMENT PRINTING OFFICE: 1975 - 620 - 499/3216 3-1 


22 

























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